The massive surge in cryptocurrency adoption by the general public in recent years has led to a fierce debate as to which digital token will be the most valuable in the future. While hundreds of different coins exist today, there remain only two real contenders for the top spot in the eyes of the crypto community – Bitcoin and Ethereum.
There was little doubt at the beginning of the decade as to which digital tokens would dominate cryptocurrency for the foreseeable future. Bitcoin’s surging price, massive media attention, and a four-year headstart on the competition suggested that it was miles ahead of other crypto assets in terms of value.
Since that time, however, Ethereum has emerged as a strong competitor to Bitcoin and is regarded by many in the crypto space as the future of decentralized finance. Thanks to the surging popularity of its dApps in areas such as finance, arts and collectibles (in the form of non-fungible tokens), and gaming, the price of ETH surged close to 500% in 2021. As a result, while ETH’s market cap was only about one-tenth of BTC’s in January 2020, the cryptocurrency’s market cap now sits at $341 billion, around half of Bitcoin’s $745 billion total.
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Similarities
The Bitcoin vs Ethereum debate has galvanized the crypto market for much of the past two years, but what many forget is that the two currencies both operate on a blockchain and consequently have much in common.
The following list highlights some of the key similarities between Bitcoin and Ethereum.
- Both are assets based on a publicly displayed distributed ledger called a blockchain.
- Both are fungible tokens, meaning that every coin is exactly like and can be exchanged for another coin (unlike NFTs, which are non-fungible)
- Both can be traded on cryptocurrency exchanges.
- Both can be stored in digital wallets, using alphanumeric strings as addresses.
- Both are decentralized currencies, meaning that they are not dependent on third parties such as governments and central banks.
History of Bitcoin
The first-ever mention of Bitcoin occurred on October 31, 2008, in a white paper written by a pseudonymous author by the name of Satoshi Nakamoto. The paper described how the use of a decentralized ledger known as a blockchain could make possible a peer-to-peer, online currency that could create a record of transactions seen by anyone with access to the network.
On January 3, 2009, Nakamoto launched the world’s first cryptocurrency when he mined the first block on the Bitcoin network, known as the genesis block. The first known Bitcoin commercial transaction occurred on May 22, 2010, when programmer Laszlo Hanyecz traded 10,000 Bitcoins for two pizzas (worth around $400 million today).
What is Bitcoin?
Bitcoin is a peer-to-peer online currency, meaning that all transactions happen directly between equal, independent network participants, without the need for any intermediary to permit or facilitate them. In the words of Satoshi Nakamoto, the cryptocurrency’s creator, Bitcoin allows “online payments to be sent directly from one party to another without going through a financial institution.”
What Makes Bitcoin Unique?
Bitcoin is rightfully referred to as “digital gold” for a number of reasons, chief of which is that its limited supply, which will never exceed 21 million, makes it impossible for its developers to introduce more coins and devalue the currency. Additionally, as the first cryptocurrency ever created, Bitcoin has gained a massive lead on all its competition in terms of adoption and development.
The entire cryptocurrency market, now worth more than $2 trillion, is based on the idea realized by Bitcoin – that money can be sent and received by anyone, anywhere in the world, without reliance on meddling intermediaries, such as banks and financial services companies.
Bitcoin still remains at the top of the entire crypto market, with its market cap surpassing $1 trillion in 2021. Although its price has since declined from its all-time high of $64,863.10 on April 14, 2021, many institutions have begun to value Bitcoin as a hedge against inflation. And though the Bitcoin price seems to rise and fall with public markets, it is disconnected from central banks, which often devalue fiat currency through quantitative easing and reckless government spending.
Bitcoin Mining
One of the most unique aspects of Bitcoin is the way in which new coins are created – a process known as “mining.” The Bitcoin blockchain employs a concept known as Proof-of-Work (PoW) which makes mining possible. On a general level, PoW is a decentralized consensus mechanism that requires members of a network to expend effort in solving a mathematical puzzle to prevent anybody from gaming the system.
Applied to Bitcoin mining, PoW works when new blocks are created by miners, the individuals who own and use the computers required to solve complex mathematical equations. Approximately every ten minutes, a miner generates a new winning proof-of-work, which is then accepted by the network – thus creating more Bitcoin.
As of April 2022, approximately 19 million bitcoins have already been mined and issued, with about 2.1 million bitcoins yet to be released. Based on the number of new bitcoins issued per block decreasing by half approximately every four years, the final bitcoin is not expected to be created until the year 2140.
Mining Safeguards
Bitcoin mining solves two of the main challenges in sustaining a digital currency – creating new tokens and protecting the system from cyberattacks.
This system is so effective at deterring attacks due to its structure. A blockchain is made out of blocks of data that are stored on nodes, which can be thought of as small servers. Nodes make up the links in the blockchain and consist of thousands of devices (such as computers and laptops) through which miners access the system. As nodes are all connected to each other, they constantly exchange the latest data.
Every node in the blockchain must be exactly the same, having the same hashes (long strings of numbers), which prevents hacking. Once the Bitcoin network processes data and turns it into a valid hash, it is broadcast to the blockchain and added to a new block.
Bitcoin’s amazing consensus system eliminates a hacker’s ability to change users’ balances or make them spend their funds twice.
History of Ethereum
Four years after the birth of Bitcoin, a 2013 whitepaper by programmer Vitalik Buterin described the concept of a new cryptocurrency called Ethereum. In the summer of 2014, Buterin, along with other co-founders, secured funding for the project in an online public crowd sale which helped his team raise $18.3 million in Bitcoin.
The Ethereum Foundation officially launched the blockchain on July 30, 2015, under the prototype codenamed “Frontier.” Since that time, the Ethereum price has skyrocketed from $0.5 to over $3000 a coin. There have also been several network updates along the way that have upgraded and modernized the token’s blockchain and efficiency.
What is Ethereum?
Ethereum is a decentralized computing platform that uses Ether (also called ETH) to pay transaction fees (also known as gas fees). Developers can use Ethereum to run decentralized applications (dApps) and issue new crypto assets, known as Ethereum tokens.
The entire Ethereum network is made possible through smart contracts, its key innovation. Like normal contracts, smart contracts establish the terms of an agreement between parties. However, unlike paper contracts, smart contracts automatically execute when the terms are met without the need for either participating party to know who is on the other side of the deal — preserving the anonymity and the safety of users.
What Makes Ethereum Unique?
Ethereum’s smart contract platform is truly unique among cryptocurrencies, and it theoretically has the potential to improve the safety and security of any system it comes into contact with. As a case in point, the current NFT surge in gaming and digital art could only be made possible through Ethereum’s blockchain. As co-founder Gavin Wood stated, Ethereum was made to be “one computer for the entire planet,” with the power to make any program more robust, censorship-resistant, and less prone to fraud.
A less-known application of Ethereum is its ability to “host” other cryptocurrencies through its ERC-20 compatibility standard. Currently, over 280,000 ERC-20-compliant tokens have been launched, with over 40 of these making the list of top 100 cryptocurrencies by market capitalization.
Key Differences
1.) Varying Purposes
Comparing Bitcoin and Ethereum can often be difficult because the two cryptocurrencies were created for vastly different purposes. While Bitcoin was founded as an alternative to national currencies and aims to be a medium of exchange and a store of value, Ethereum was created as a platform to facilitate programmatic contracts and applications via its own currency.
Simply put, the primary purpose of ether is not to establish itself as an alternative monetary system but rather to facilitate and monetize the operation of the Ethereum smart contract and dApp platform.
2.) Current Price
For all the talk about the potential applications of the Ethereum blockchain, one glaring difference between the two cryptocurrencies is the price of each token. Bitcoin currently sits at a price of just over $39,000, while the Ethereum price is hovering just under $3000.
While Bitcoin’s price may make Ethereum seem like a worthless token, it’s worth noting that the next highest coin, BNB, is valued at a measly $410.11 a coin. Considering that other cryptocurrencies such as Dogecoin ($0.13) and Solana ($98.54) are considered mainstream tokens and receive massive amounts of media attention, it becomes clear that the Bitcoin and Ethereum networks are in a league of their own when it comes to pricing.
6.) Consensus Protocol System
Since its founding, the Ethereum network has employed the consensus protocol system dubbed proof of work (PoW), the same system as Bitcoin and one which allows the nodes of the respective blockchains to prevent various types of cyberattacks. However, in August of 2021, Ethereum made a major update to its system known as the London Hard Fork, which laid the groundwork for the blockchain’s eventual transition to a Proof-of-Stake (PoS) model.
A hard fork is a protocol upgrade that is not backward compatible. This means every node (every computer connected to the network) needs to upgrade before the new blockchain activates and rejects any blocks from the previous chain. This doesn’t mean the old Ethereum blockchain ceases to exist, but it is incompatible with the new chain.
The Ethereum Foundation officially launched the blockchain on July 30, 2015, under the prototype codenamed “Frontier.” Since then, there have been several network updates: “Constantinople” on Feb. 28, 2019, “Istanbul” on Dec. 8, 2019, “Muir Glacier” on Jan. 2, 2020, “Berlin” on April 14, 2021, the “London” hard fork on Aug. 5, 2021, and Arrow Glacier on Dec.9, 2021.
Other examples of notorious hard forks include Ethereum’s fork that resulted in Ethereum Classic and Bitcoin’s fork that produced Bitcoin Cash.
Proof of Stake (PoS)
The planned transition of the Ethereum network to a PoS model stems from enormous energy costs produced by the Proof-of-Work system. PoW remains highly energy-intensive because of the computational power required. In PoS, however, computational power is substituted with staking – replacing miners with validators who stake their cryptocurrency holdings to create new blocks.
Currently, the Ethereum developer team aims to move its entire network to the PoS model sometime in the first half of 2022. This event has been referred to as “The Merge,” and will result in 99% less energy use, as well as allow the network to scale and help it reach 100,000 transactions per second.
Despite the positive implications of the PoS system to the Ethereum blockchain, the project team has been continually delaying the move for years now. Ethereum’s founder, Vitalik Buterin, stated in May 2021, “[We thought] it would take one year to [implement] PoS … but it actually [has] taken around six years.”
As a result of the delays, many investors have held off on plans to buy Ethereum until the Ethereum improvement proposals have been implemented.
3.) Supply
As already mentioned, Bitcoin’s total supply is limited by its software and will never exceed 21,000,000 coins. Because the creators of Ethereum place its value less in its scarcity than in its ability to power decentralized applications, Ethereum has many more tokens in circulation.
As of September 2021, there were around 117.5 million ETH coins in circulation. Of those 117.5 million, 72 million were issued in the first-ever block on the Ethereum blockchain, known as the genesis block. Of these 72 million, 60 million were allocated to the initial contributors to the 2014 crowd sale that funded the project, and 12 million were given to the development fund.
Shift Towards Supply Limit
Ethereum’s developers had previously justified their lax controls of ETH’s total supply by stating that they did not want a “fixed security budget” for the network. Being able to adjust ETH’s issuance rate via consensus protocols gives the Ethereum network flexibility to maintain the minimum issuance needed for adequate security.
However, the introduction of the London Hard Fork will bring certain supply restrictions previously unseen in the Ethereum network. The new update will result in the burning of base fees used in transactions, which will remove the ETH from circulation. This means a higher activity on the network would lead to more ETH burned, resulting in a decreasing supply that should push the price up. The potential appreciation of the Ethereum price will undoubtedly be a welcome sign to ETH holders, who will see the value of their investments rise.
4.) Mining Rewards
The primary aspects of both Bitcoin and Ethereum’s mining processes are virtually the same, with nodes competing against each other in a PoW model to solve a mathematical equation. Ethereum operates on the ethash mining algorithm instead of the SHA-256 algorithm found in Bitcoin’s mining process.
Mining is a complex process that relies not only on computers but on individuals who set up computational equipment in order to make the complex cryptographic calculations possible. As compensation for their resources and effort (electricity costs associated with mining are enormous), the miners receive rewards for every block that they successfully add to the blockchain.
What is slightly different between the two models is the way rewards are doled out for miners. For Ethereum, the original reward for adding a block in 2015 was 5 ETH, but this has since declined to 3 ETH in late 2017 and then to 2 ETH in early 2019.
At Bitcoin’s launch, miners would earn 50 bitcoins per block. However, this number gets halved with every 210,000 new blocks mined, which takes the network roughly four years. By May of 2020, the block reward had been halved three times, and currently, miners are only entitled to 6.25 bitcoins.
5.) Addition of New Blocks
Other differences between these networks include the time for new blocks of data to be added, which determines the time it takes to confirm transactions. Blocks on the Bitcoin network are added on an average every 10 minutes, while on the Ethereum blockchain, they take about 14-16 seconds.
7.) Public Wallet Addresses
Public wallet addresses also vary between the Bitcoin and Ethereum networks. Comparable to an International Bank Account Number, a unique identifier financial institutions use to find the bank and country a client’s account belongs to, these wallet addresses allow funds to be sent directly to a user. On Bitcoin, addresses can start with a 1, a 3, or with “bc1,” while on Ethereum these start with “0x.”
8.) Issuing Tokens
Another key difference is how new tokens are issued on both the Bitcoin and Ethereum networks. While Bitcoin uses the Omni layer, a platform meant for creating and trading currencies on the Bitcoin blockchain, Ethereum tokens are issued following the ERC-20 standard.
The ERC-20 standard defines a list of rules for the tokens on the network and includes several functions developers have to implement before launching their tokens. These functions include the following requirements:
- Providing information about the token’s total supply
- Providing account balances on users’ addresses
- Allowing funds to be moved between addresses
The Future of Cryptocurrency
At the start of the cryptocurrency boom in 2017, Bitcoin’s market value accounted for close to 87% of the total cryptocurrency market. By February 2022, as other cryptocurrencies gained in popularity, Bitcoin’s market share had declined to 42% of the cryptocurrency market.
It remains to be seen whether Bitcoin can hold its value, or whether it will continue to bleed market share to Ethereum, which has many applications to gaming and NFTs that have yet to be discovered. As many have pointed out, the feud between Bitcoin and Ethereum may in reality be non-existent, as the two tokens may actually complement each other and provide varying uses well into the future.
